Better than expected services PMI and Retail Trade data out of the Eurozone boosted the euro in tonight's trading with the pair hitting a two day high of 1.1969. The EZ services PMI printed at 54.7 vs. expectations of only 53.5. More importantly the internals of the report looked quite good with employment reading rising to 51.6 from 50.8. The data confirms our contention that the lower euro is having significant positive effects on the EZ economy and taken together with strong PMI manufacturing numbers yesterday suggests that Euro-zone growth should continue to improve. 

Meanwhile USD/JPY has retreated from multi year lows after hitting 114.40 in New York trade yesterday. For the past several weeks it has been the victim of carry trades and higher oil prices. With oil prices stabilizing at $63/bbl some of the shorter term speculative accounts banked their gains causing USD/JPY to drop back through the 114.00 figure.

In the past month, the dollar gained over 500 points against the yen in a powerful uninterrupted run that forced most of yen longs to cover for losses. However, as the pair now approaches long term resistance at 115.00 level the easy money for greenback bulls may have already e. With oil prices seemingly forming a near term top and US interest rate increases priced into the market, only a severe deterioration of Japanese fundamentals could force a further rise in USD/JPY.  To the contrary, the more likely scenario is that a correction in the oil market which takes crude below the $60 handle will catalyze a decline in the USD/JPY relieving some of the overbought momentum built up on the pair.  

Boris Schlossberg is a Senior Currency Strategist at FXCM.